Differentiation-inducing factor (DIF)-1 is a chlorinated alkyl phenone released by developing Dictyostelium amoebae, which induces them to differentiate into stalk cells. A biosynthetic pathway for DIF-1 is proposed from labeling, inhibitor, and enzymological experiments. Cells incorporate 36Cl- into DIF-1 during development, showing that the chlorine atoms originate from chloride ions; peak incorporation is at the first finger stage. DIF-1 synthesis can be blocked by cerulenin, a polyketide synthase inhibitor, suggesting that it is made from a polyketide. This is most likely the C12 polyketide (2,4,6-trihydroxyphenyl)-1-hexan-1-one (THPH). Feeding experiments confirm that living cells can convert THPH to DIF-1. Conversion requires both chlorination and methylation of THPH, and enzymatic activities able to do this exist in cell lysates. The chlorinating activity, assayed using 36Cl-, is stimulated by H2O2 and requires both soluble and particulate components. It is specific for THPH and does not use this compound after O-methylation. The methyltransferase is soluble, uses S-adenosyl-L-methionine as a co-substrate, has a Km for dichloro-THPH of about 1.1 microM, and strongly prefers this substrate to close analogues. Both chlorinating and methyltransferase activities increase in development in parallel with DIF-1 production, and both are greatly reduced in a mutant strain that makes little DIF-1. It is proposed that DIF-1 is made by the initial assembly of a C12 polyketide skeleton, which is then chlorinated and methylated.